Over the last 12 years, Oakes & Fosher has tried and won more FINRA arbitration cases on behalf of individual investors than any other law firm in the country.

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Mewbourne Energy Partners

Oakes & Fosher is currently investigating the possible unsuitability of investments housed under the Mewbourne Energy Partners umbrella. Mewbourne Energy Partners is a United States Company that produces oil and gas for consumers. The company’s main holdings are from interests held in developmental gas and oil prospects located in various locations throughout the southern United States. These locations include; the Anadarko Basin of Western Oklahoma, the Texas Panhandle, and the Permian Basin of New Mexico and West Texas. Mewbourne Energy Partners is a privately traded security that houses multiple private investment funds operating as limited partnerships. These oil and gas limited partnerships are privately traded securities known as private placements. Private placements are neither traded on any public securities exchanges or registered with the Securities and Exchange Commission.

Private Placements Housed Under Mewbourne

  • Mewbourne Energy Partners 11-A
  • Mewbourne Energy Partners 12-A
  • Mewbourne Energy Partners 13-A
  • Mewbourne Energy Partners 14-A
  • Mewbourne Energy Partners 15-A

The Nature Of Energy Private Placements 

Private placements are very poorly regulated by both securities firms and regulatory authorities. This makes it very easy for investors to be harmed by these investments. There are multiple reasons that private placements like oil and gas limited partnerships are harmful to investors. These would be their associated risk, illiquidity, and extremely high cost structure.

These energy products are incredibly risky due to the nature of the industry. The energy market is constantly changing, which often makes the demand for certain energy sources fluctuate sporadically. These companies could spend significant amounts of capital obtaining an energy source and then be offered prices significantly less than was expected. Even if the demand for these energy sources remains where it needs to, these private companies also run the risk that not enough oil or gas will be obtained once they drill. There is no actual scientific way to determine, how much oil or gas they will obtain before they start drilling. If an oil well produces an amount significantly less than expected, it can cause substantial losses and even lead to the company’s failure. These risks can have a significant effects on investor distributions and the overall value of the security.

Another drawback associated with private placements like those housed under Mewbourne Energy Partners is how illiquid they are. Publicly traded equities are accompanied by what is known as a guaranteed redemption. This means that an investor can liquidate their shares for the stated market value should the need to do so arise. However, this is not the case with private placements. These investments often run for a finite amount of time before being liquidated. Investors are usually expected to remain invested until this time. However, this fact often goes undisclosed to many investors. Some oil and gas limited partnerships may offer buy outs early, or some secondary investment companies may offer a buy out option to investors; however, neither option is that great as the buy out prices are always substantially less than what investors are told their shares are currently valued at.

Conflicts Of Interest And Hard Pressure Sales Tactics

One major drawback of oil and gas limited partnerships is their extremely high cost structure. Broker commissions for products like this can be as high as ten percent of an investor’s principal investment. This is an addition to other upfront fees that can cause an investor’s principal investment to be drained of up to 17 percent. Essentially, an investor loses almost 1/5th of their investment right off the bat just for the opportunity to invest in this flawed product. These extremely high commissions also serve as the main motivation for less than scrupulous securities brokers recommending these products to financially unsuited investors. Brokers like this often employ more hard pressure sales techniques not normally used when recommending more traditional publicly traded equities.

Less than scrupulous brokers may create a false aura of exclusivity when recommending these investments. Investors may believe they are being offered an investment that isn’t offered to that many others. This may lead to investors misunderstanding their own financial situation as they may begin to believe they are an elite investor suited for these types of investments. Another tactic that brokers often use is creating a “time crunch.” If investors believe that a decision needs to be made now, they may choose to invest before they have the opportunity to determine if the investment is actually suitable for them. However, the most popular tactic these brokers use when recommending these oil and gas limited partnerships is the promise of high income distributions. Brokers love to misrepresent that the associated fees pale in comparison to what investors will receive in dividends. However, many investors are not made aware that these distributions are not guaranteed, but are entirely determined by the security’s success.

Moreover, the investors usually have little understanding of how these gas and oil private placements actually operate. It is not uncommon, for a company like Mewbourne Energy Partners to also operate with substantial conflicts of interest–in addition to the recommending brokers. Atlas Resources, a private energy company just like Mewbourne Energy Partners, solicited $300 million from investors for a new project, all the while promising to invest $145 million of its own capital. However, it was reported that a large portion of the funds Atlas Resources invested was being used to to cover the commissions of broker dealers selling the products at an affiliated company, to purchase the drilling leases from another affiliated company, and to purchase the drilling equipment from another affiliated company. Atlas Resources allegedly funneled this money back into their own company in order to greatly reduce their portion of risk. This qualifies as securities fraud as the fact that a company would contribute a sizable portion to an investment may qualify as a deciding factor for many individuals on deciding whether or not to invest. Due to the large potential for oversight associated with private placements, there is nothing preventing Mewbourne Energy Partners, and other similar companies, from behaving in the exact same manner.

Oakes & Fosher Can Help

Securities brokers have a legal obligation to only recommend investments to customers for which they are suited. This suitability is determined by factors such as the customer’s financial situation, risk tolerance, and investment objectives. Private placements, of any nature, are only designed to be sold to sophisticated and experienced investors that clearly understand the the risks associated with them. Many investors are unaware of the legal recourse available to them after losing money due to securities broker fraud and/or negligence. The truth is that investors who have lost money in this fashion may actually be entitled to damages. Oakes & Fosher is very interested in hearing from individuals currently and formerly invested in Mewbourne Energy Partners, or other oil and gas limited partnerships. We dedicated our entire legal practice to helping investors across the nation. If you, or someone you know, is concerned about your investment, please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.